Companies continue to respond to the economic downturn through cost reduction efforts as their forecast of profits in 2009 becomes less optimistic
Kyiv, 7 October 2009 – Ernst & Young’s fourth survey Impact of the economic crisis on Ukrainian companies shows that profitability and sales revenues continue to weaken. As in previous periods, during the crisis year this affected 73% and 70% participants, respectively.
Overall, 77 major Ukrainian and foreign companies working in Ukraine participated in the survey, conducted by Ernst & Young with the support of the European Business Association from 10 to 28 September 2009.
The five major problems which companies have faced since the beginning of the crisis remain the same. They are Hryvnia devaluation, reduction in sales, delayed payments by partners/clients, lower (sometimes much lower) demand for products/services, and reducing expenses. However, the priorities of these issues have shifted. In September 2009, 82% of respondents ranked the devaluation of the Hryvnia as their most pressing problem, followed by reduction of sales. The importance of downsizing fell by one-third since the last survey and is now rated at its lowest level since we began the survey.
In Q2 2009, a larger number of respondents (51%) indicated that they expect profits in 2009 to be lower than in pre-crisis 2008. Perhaps this reported shift of expecting dramatically lower profits is a result of a better understanding of 2009 annual performance. 27% respondents expect profits to be moderately lower this year and only 8% of companies reported that they expect to have the same profits as last year. Both of these figures are statistically much lower than the previous survey results, where 39% reported expectation of moderate declines and 16% expected on-par results. Slightly more respondents (14%) expect an increase in profits compared to 2008 results.
For the first time since the beginning of our survey in Q3 2008, this survey now reports an improvement in sales volumes in Q2 2009. The survey shows that over 50% of respondents had quarter-on-quarter sales growth in Q2 2009. On average, companies are seeing sales growth of less than 5% to 10%. Decisions to lower production or service capacity still prevail in the current economic conditions and were reported by 35% of respondents. The share of companies choosing to do so is falling. At the same time, a rise in production capacity was reported by 27% of companies. Although not a large increase, the majority of companies increased production capacity by from 5% to 10% percent.
Alexei Kredisov, Country Managing Partner of Ernst & Young, says: “This trend may indicate early signs of a slow recovery by companies that are either getting used to doing business in the new economic conditions or are finding a more permanent improvement in their business. However, this slight improvement which we have spotted is taking place on the background of the dramatic fall that the Ukrainian economy experienced in Q4 2008. At the moment, it is difficult to make any projections, but if there is no further economic turbulence in the coming months, sales will likely continue a slow growth trend.”
Anna Derevyanko, Executive Director of the European Business Association, commented: “Companies operating in Ukraine have learned already to adjust quickly to the changes of business environment here. Although the world financial turmoil and resulting severe economic crisis in Ukraine demonstrated yet another time that the business alone cannot revive the country’s economy. Ukraine still has to go through a great amount of regulatory changes in order to make the improvement of the investment climate truly noticeable.”
Companies continue to respond to the economic downturn through cost reduction efforts. All have reported that they are undertaking or have already undertaken some form of cost reduction activities.
Most business reported that they opted for traditional ways to reduce costs – reduction of administrative expenses (77%), reduction of marketing and selling costs (63%), better terms on real estate (62%), personnel layoffs (54%), and better financial terms with vendors/suppliers (51%). The percentage of respondents undertaking these activities has remained quite constant since the last survey.
One significant trend is the dramatic increase of respondents seeking to increase efficiency – 70% reported they are focusing on operational efficiencies and 55% are re-evaluating the profitability of products/services.
Adlai Goldberg, Partner and Advisory Leader with Ernst & Young Ukraine, says: “Operational and efficiency improvements, while more difficult to achieve over typical cost reduction activities, are certain to help companies remain more competitive and profitable in the longer term.”
When asked to rank what business activities will become more important in the future, managing risk was listed as number one (78% of respondents), followed by managing working capital and cash (74%).
The majority of respondents are positive about the economic future of Ukraine; however, expectations on the timeline of recovery have slipped. In this survey, a significant number of respondents (80%) believe that the Ukrainian economy will now stop falling in 2010 (in contrast to the previous survey’s expectation of 2009).
About the survey
The fourth Ernst & Young survey of the Impact of the economic crisis on Ukrainian companies was conducted among companies working in Ukraine from 10 to 28 September 2009. Overall, 77 companies participated in the survey; 27% were domestic enterprises and the other 73% were foreign companies working in Ukraine (multinational, European and regional (CIS)). 42% of participants represent small businesses (up to 200 employees); 23% – medium businesses (200-1,000 employees); and big businesses (more than 1,000 employees) accounted for 35%. Companies that took part in the survey work in the sector of financial services (17%), retail and consumer products (14%), real estate and construction (10%), and other areas.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.
In Ukraine Ernst & Young established its practice in 1991. Ernst & Young Ukraine now employs more than 500 professionals providing a full range of services to a number of multinational corporations and Ukrainian enterprises. For more information, please visit www.ey.com/ukraine.
